Case study: When a lack of cultural intelligence leads to business failure

Many companies have been listening to their international customers and finding ways to adapt to cultural sensitivities and tastes. Johnson & Johnson’s mouthwash Listerine, for example, now comes in an alcohol-free version (Listerine Zero) and is popular in Muslim countries. There is also a Green Tea Listerine for Asian markets. Starbucks is another company that succeeds internationally through adapting its products – and the design of its facilities – to local tastes.

While cultural adaptability has progressed, there is still a long way to go. An Economist Intelligence Unit survey reported nearly 50% of executives admitted that ineffective communication or inadequate collaboration had obstructed major international transactions resulting in significant financial loss. The US electronics retailer Best Buy retreated from the UK just 18 months after opening its first big box store in the country – a loss considered to be in the region of $318 million.

The same Economist survey also reports 51 and 49 percent respectively identified differences in cultural traditions and workplace norms as the greatest threats to smooth cross-border relationships.

Cultural intelligence is still a major influence on the success of a global strategy, but another factor is of critical importance – geopolitics. An article in the May 2015 issue of The Atlantic says, “an increasing number of corporations are hiring political scientists, starting their board meetings with geopolitical briefings, and seeking the advice of former diplomats, spymasters, and military leaders” [like retired general and CIA director David Petraeus, and Sir John Sawers, former head of Britain’s intelligence service MI6].

The UK retailer Sainsbury’s pulled out of Egypt after just two years with losses of more than 100 million pounds. Geo cultural-politics played a crucial role when at the height of a Palestinian uprising a story was spread – apparently encouraged by local shopkeepers – that Sainsbury’s had Jewish connections. According to a company spokeswoman, “The situation was more stable when we went in there.”

In 2014, Marks and Spencer’s (M&S), a UK retailer, set targets to open 250 new stores overseas in three years. The aim was to increase international sales by a quarter and push profit up by 40 percent with China, Russia, India, the Middle East and Western Europe the focus. Patrick Bousquet-Chavanne, M&S’s executive director of marketing & international told Reuters very recently that those overseas targets were now unobtainable . . . “The world has shifted, is a different place . . . The Syrian situation was very different from what it is today . . . Putin had not invaded Ukraine and China was growing at close to 9 percent.”